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Diamond jewellery maker Nakshatra World Ltd, which is owned by Mumbai-based Gitanjali Gems Ltd, on Friday filed a draft red herring prospectus with capital markets regulator Securities and Exchange Board of India for an initial public offering.

The IPO comprises a fresh issue of 18 million shares to raise up to Rs 400 crore ($60 million). This will result in an approximate stake dilution of 29.16% in the company’s equity capital.

VCCircle had reported late last month that Nakshatra was in advanced stages of filing its draft proposal for an IPO.

The planned issue size is smaller than the Rs 650 crore ($96 million then) amount that Gitanjali Gems had announced for Nakshatra’s IPO in a stock-exchange filing in December last year.

The wholly owned unit of Mumbai-based Gitanjali Gems Ltd will become the first branded jewellery firm to go public since December 2012 when Delhi-based PC Jeweller Ltd completed its Rs 609-crore IPO.

Based on the planned fundraise, Nakshatra is looking at a valuation of 45 times its 2015-16 profit, a premium compared with its listed peers.

Delhi-based PC Jeweller is trading at 17 times its 2015-16 net profit with a market value of around Rs 6,800 crore. Mumbai-based TBZ reported a net loss of Rs 23.13 crore for the year ended 31 March 2016 and a net profit of Rs 12.89 crore for the nine months ended 31 December 2016. It has a market cap of Rs 459 crore, or almost 17 times its annualised profit.

Bangalore-headquartered Rajesh Exports Ltd has a market value of Rs 15,093 crore, or about 32 times its net profit for the last fiscal year.

Gitanjali Gems went public in early 2006 through an IPO that was subscribed 15.35 times. Its shares fell 2.46% on the BSE on Friday to Rs 63.35, giving the company a market valuation of Rs 751.43 crore. This is about 16 times its net profit for 2015-16.

To be sure, companies’ valuations are based on future earnings and past earnings multiples are at best a proxy indicator.

Snapshot of the Nakshatra issue

Issue size: The company is looking to raise up to Rs 400 crore by way of a fresh issue of shares. This would value Nakshatra around Rs 1,371 crore ($205.9 million).

Company: Gitanjali Gems is one of India’s largest publicly listed jewellery retailers by revenue. It posted a net profit of Rs 48.76 crore on revenue of Rs 8,603.63 crore for the year ended 31 March 2016.

Gitanjali Gems also owns a majority stake in 34 subsidiaries and minority ownership in three companies. The Gitanjali Group is led by chairman and managing director Mehul C Choksi.

Nakshatra has nearly a dozen brands under its umbrella including Nakshatra, Asmi, Gili, Sangini and Parineeta. It makes and sells branded studded jewellery, gold jewellery and other jewellery products in India and overseas.

At the end of September 2016, Nakshatra had eight manufacturing units located across Mumbai, Jaipur, Surat and Hyderabad. It had a distribution network across 290 cities and towns in India. It operates 12 proprietary stores and has 61 stores and 329 shop-in-shop outets in its distribution network. In all, it has 1,644 points of sale in India.

Outside India, the company has 890 points of sale located across China, Singapore, Thailand, Malaysia, Indonesia, the United Arab Emirates, Saudi Arabia and Qatar.

Financials

Nakshatra is the most profitable subsidiary of Gitanjali Gems. The company reported consolidated net profit of Rs 73.67 crore for the six months ended September 2016 on consolidated revenue (from operations) of Rs 4,000 crore.

Nakshatra’s net profit grew almost five-fold for 2015-16 to Rs 80.02 crore on consolidated revenue of Rs 5,984.30 crore, which grew 32% from a year earlier.

The company derived 62% of its revenue from jewellery exports for the six months ended September 2016, compared with 46.65% for 2015-16 and 27.60% for 2014-15.